The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Notes to Condensed Consolidated Interim Financial Statements
For the Three-Month Periods Ended September 30, 2020 and 2019
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Paramount Gold Nevada Corp. (the “Company” or “Paramount”), incorporated under Chapter 78 of Nevada Revised Statutes, and its wholly-owned subsidiaries are engaged in the acquisition, exploration and development of precious metal properties. The Company’s wholly owned subsidiaries include New Sleeper Gold LLC, Sleeper Mining Company, LLC, and Calico Resources USA Corp (“Calico”). The Company is in the process of exploring its mineral properties in Nevada and Oregon, United States. The Company’s activities are subject to significant risks and uncertainties, including the risk of failing to secure additional funding to advance its projects and the risks of determining whether these properties contain reserves that are economically recoverable. The Company’s shares of common stock trade on the NYSE American LLC under the symbol “PZG”.
Basis of Presentation and Preparation
The unaudited condensed consolidated interim financial statements are prepared by management in accordance with accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included.
The Company faces various risks related to the COVID-19 global pandemic. The Company cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on the business, financial position, results of operations and/or cash flows. The results of operations for the interim period ending September 30, 2020 is not necessarily indicative of the operating results expected for the year ended June 30, 2021 or for any future period.
The condensed consolidated interim financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), are presented in US dollars and follow the same accounting policies and methods of their application as the most recent annual financial statements. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and related footnotes for the year ended June 30, 2020.
Significant Accounting Policies
Please see Note 1- Description of Business and Summary of Significant Accounting Policies contained in the 2020 10-K.
6
Note 2. Recent Accounting Guidance
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. The changes will be effective for the Company’s fiscal year beginning July 1, 2020. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adoption of this guidance on July 1, 2020 did not have a material effect on the Company’s consolidated financial position, results of operations, cash flows and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. These changes will be effective for the Company’s fiscal year beginning July 1, 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company adoption of this guidance on July 1, 2020 did not have a material effect on the Company’s consolidated financial position, results of operations, cash flows and related disclosures.
Note 3. Fair Value Measurements
Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described below:
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
The fair value of financial assets and liabilities carried at book value by level within the fair value hierarchy in the Condensed Consolidated Interim Balance Sheets at September 30, 2020 and June 30, 2020 are presented in the following table:
|
|
|
|
|
|
Fair Value at September 30, 2020
|
|
|
June 30, 2020
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
4,491,478
|
|
|
|
4,491,478
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
5,434,081
|
|
The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy due to their short-term nature. Convertible debt is classified within Level 2 of the fair value hierarchy, carried at book value.
Note 4. Non-Cash Transactions
During the three-month period ended September 30, 2020, the Company issued 183,395 shares of Common Stock for payment of interest accrued and owing at June 30, 2020 on its outstanding 2019 Convertible Notes. Additionally, 200,000 shares of Common Stock were issued upon the conversion of 200 of its outstanding 2019 Convertible Notes.
During the three-month period ended September 30, 2019, the Company issued 1,096,791 shares to Ausenco Engineering USA South Inc. (“Ausenco”) in exchange for services valued at $976,144 to complete a feasibility study at its Grassy Mountain Project. The shares are being held in escrow until Ausenco delivers a final feasibility study report to the Company.
7
Note 5. Capital Stock
Authorized Capital
Authorized capital stock consists of 50,000,000 common shares with par value of $0.01 per common share (June 30, 2020 – 50,000,000 common shares with par value $0.01 per common share).
During the three-month period ended September 30, 2020, the Company issued 595,281 shares at an approximate average price of $1.3344 for gross proceeds of $794,345. Share issuance costs including commissions were $23,830 for net proceeds of $770,514. The Company also issued 183,395 shares for payment of interest accrued and owing at June 30, 2020 (Note 6). The Company also issued 200,000 shares upon the conversion of 200 of the 2019 Senior Secured Convertible Notes (Note 6).
During the three-month period ended September 30, 2019, the Company issued 1,096,791 shares at a value of $0.89 per share to Ausenco in exchange for services to complete a feasibility study at its Grassy Mountain Project (Note 4).
At September 30, 2020 there were 33,937,080 common shares issued and outstanding (June 30, 2020 – 32,958,404 common shares).
Warrants
A summary of warrants exercisable into common stock activity as of September 30, 2020, and changes during the three-month period ended is presented below:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted-
Average Remaining
Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
($)
|
|
Outstanding at July 1, 2020
|
|
|
1,200,000
|
|
|
$
|
1.40
|
|
|
|
0.03
|
|
|
|
—
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(1,200,000
|
)
|
|
|
1.40
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock Options and Stock Based Compensation
Paramount’s 2015 and 2016 Stock Incentive and Compensation Plans, which are stockholder-approved, permits the grant of stock options and stock to its employees for up to 2.169 million shares of common stock. Option awards are generally granted with an exercise price equal to the market price of Paramount’s stock at the date of grant and have contractual lives of 5 years. To better align the interests of its key executives and employees with those of its stockholders, a significant portion of those stock option awards will vest contingent upon meeting certain stock price appreciation performance goals or other performance conditions. Option and stock awards provide for accelerated vesting if there is a change in control (as defined in the employee stock option plan).
During the three-month period ending September 30, 2020, the Company granted 55,000 stock options to senior management, with a strike price of $1.00. Each option carries a 5 year term. Options received by senior management will vest and become exercisable on achieving the following performance conditions: 1) one-half upon the completion of the Grassy Mountain Project feasibility study and 2) one-half on the issuance of mining permits for the Grassy Mountain Project by the State of Oregon.
The fair value for these options was calculated using the Black-Scholes option valuations method. The weighted average assumptions used for the fiscal years ending June 30, 2021 and 2020 were as follows:
|
|
2021
|
|
|
2020
|
|
Weighted average risk-free interest rate
|
|
|
0.22
|
%
|
|
|
1.60
|
%
|
Weighted-average volatility
|
|
|
63
|
%
|
|
|
61
|
%
|
Expected dividends
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Weighted average expected term (years)
|
|
|
5.00
|
|
|
|
5.00
|
|
Weighted average fair value
|
|
$
|
0.64
|
|
|
$
|
0.39
|
|
8
A summary of option activity under the Stock Incentive and Compensation Plan as of September 30, 2020, and changes during the three-month period ended are presented below:
Options
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted-
Average Remaining
Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at July 1, 2020
|
|
|
1,243,995
|
|
|
$
|
1.20
|
|
|
|
3.63
|
|
|
$
|
165,600
|
|
Granted
|
|
|
55,000
|
|
|
|
1.23
|
|
|
|
4.80
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2020
|
|
|
1,298,995
|
|
|
$
|
1.20
|
|
|
|
3.44
|
|
|
$
|
96,600
|
|
Exercisable at September 30, 2020
|
|
|
300,003
|
|
|
$
|
1.39
|
|
|
|
2.46
|
|
|
$
|
—
|
|
A summary of the status of Paramount’s non-vested options as at July 1, 2020 and changes during the three-month period ended September 30, 2020 is presented below:
Non-vested Options
|
|
Options
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Non-vested at July 1, 2020
|
|
|
943,992
|
|
|
$
|
0.51
|
|
Granted
|
|
|
55,000
|
|
|
|
0.64
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested at September 30, 2020
|
|
|
998,992
|
|
|
$
|
0.52
|
|
As of September 30, 2020, there was $110,376 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the employee share option plan. That cost is expected to be recognized over a weighted-average period of 1.03 years. The total fair value of stock based compensation arrangements vested during the three-month period ended September 30, 2020 and 2019, was $nil and $28,310, respectively.
Note 6. Convertible Debt
|
|
Debt
|
|
|
|
September 30, 2020
|
|
|
|
June 30, 2020
|
|
|
|
Current
|
|
|
|
Non-Current
|
|
|
|
Current
|
|
|
|
Non-Current
|
|
2019 Secured Convertible Notes
|
|
$
|
|
—
|
|
|
$
|
|
5,277,690
|
|
|
|
$
|
|
—
|
|
|
|
$
|
|
5,477,690
|
|
Less: unamortized discount and issuance costs
|
|
|
|
—
|
|
|
|
|
(196,144
|
)
|
|
|
|
|
—
|
|
|
|
|
|
(221,462
|
)
|
|
|
$
|
|
—
|
|
|
$
|
|
5,081,546
|
|
|
|
$
|
|
—
|
|
|
|
$
|
|
5,256,228
|
|
In September 2019, the Company completed a private offering of 5,478 Senior Secured Convertible Notes (“2019 Convertible Notes”) at $975 per $1,000 face amount due in 2023. Each 2019 Convertible Note will bear an interest rate of 7.5% per annum, payable semi-annually. The principal amount of the 2019 Convertible Notes will be convertible at a price of $1.00 per share of Paramount common stock. Unamortized discount and issuance costs of $275,883 will be amortized as an additional interest expense over the four year term of the 2019 Convertible Notes. During the three-month period ended September 30, 2020, the Company amortized $17,384 (2019- $2,645) of discount and issuance costs. At any point after the second anniversary of the issuance of the convertible notes, Paramount may force conversion if the share price of its common stock remains above $1.75 for 20 consecutive trading days. The convertible notes are secured by a lien on all assets of the Company and the Company is required to maintain a working capital balance of $250,000.
9
During the three-month period ended September 30, 2020, 200 of the 2019 Convertible Notes outstanding were converted into 200,000 shares of common stock of the Company (Note 5) and $7,934 of unamortized discount and issuance costs were debited to additional paid in capital to reflect the issued common stock.
Note 7. Mineral Properties
The Company has capitalized acquisition costs on mineral properties as follows:
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Sleeper
|
|
$
|
24,147,585
|
|
|
$
|
24,147,585
|
|
Grassy Mountain
|
|
|
23,185,728
|
|
|
|
23,185,728
|
|
|
|
$
|
47,333,313
|
|
|
$
|
47,333,313
|
|
Sleeper:
Sleeper is located in Humboldt County, Nevada, approximately 26 miles northwest of the town of Winnemucca. The Sleeper Gold Mine consists of 2,322 unpatented mining claims totaling approximately 38,300 acres.
Grassy Mountain:
The Grassy Mountain Project is located in Malheur County, Oregon, approximately 22 miles south of Vale, Oregon, and roughly 70 miles west of Boise, Idaho. It consists of 442 unpatented lode claims, 3 patented lode claims, and various leased fee land surface and surface/mineral rights, all totaling approximately 9,300 acres.
Note 8. Reclamation and Environmental:
The Company holds an insurance policy which is in effect until 2033 related to its Sleeper Gold Project. The policy covers reclamation costs up to an aggregate of $25 million in the event the Company’s bond is insufficient to cover any mandated reclamation obligations.
As a part of its insurance policy, the Company has funds in a commutation account and reclamation bonds which are used to reimburse reclamation costs and indemnity claims. The balance of the commutation account and reclamation bonds at September 30, 2020 is $633,060 (June 30, 2020- $695,041).
Reclamation and environmental costs are based principally on legal requirements. Management estimates costs associated with reclamation of mineral properties and properties under mine closure. On an ongoing basis the Company evaluates its estimates and assumptions, however, actual amounts could differ from those based on estimates and assumptions.
The asset retirement obligation at the Sleeper Gold Project has been measured using the following variables: 1) Expected costs for earthwork, re-vegetation, in-pit water treatment, on-going monitoring, labor and management, 2) Inflation adjustment, and 3) Market risk premium. The sum of the expected costs by year is discounted using the Company’s credit adjusted risk free interest rate from the time it expects to pay the retirement obligation to the time it incurs the obligation. The reclamation and environmental obligation recorded on the balance sheet is equal to the present value of the estimated costs.
The current undiscounted estimate of the reclamation costs for existing disturbances at the Sleeper Gold Project is $4,010,403 as required by the U.S Bureau of Land Management and the Nevada Department of Environmental Protection. Assumptions used to compute the asset retirement obligations as at September 30, 2020 and June 30, 2020 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (June 30, 2020– 9.76%) and 1.6% (June 30, 2020 – 1.6%), respectively. Expenses are expected to be incurred between the years 2019 and 2056.
10
Changes to the Company’s asset retirement obligations for the three-month period ended September 30, 2020 and the year ended June 30, 2020 are as follows:
|
|
Three-Month
Period Ended September 30, 2020
|
|
|
Year Ended June 30, 2020
|
|
Balance at beginning of period
|
|
$
|
615,170
|
|
|
$
|
965,677
|
|
Accretion expense
|
|
|
15,010
|
|
|
|
94,591
|
|
Payments
|
|
|
(63,205
|
)
|
|
|
(723,279
|
)
|
Change in estimate of existing obligation
|
|
|
—
|
|
|
|
278,181
|
|
Balance at end of period
|
|
$
|
566,975
|
|
|
$
|
615,170
|
|
The balance of the asset retirement obligation of $566,975 at September 30, 2020 (June 30, 2020 -$615,170 ) is comprised of a current portion of $91,026 (June 30, 2020 -$154,231 ) and a non-current portion of $475,949 (June 30, 2020 -$460,939). The Company recorded an accretion expense for the three-month period ended September 30, 2020 of $15,010 (September 30, 2019 - $23,647)
Note 9. Other Income
The Company’s other income details for the three-month period ended September 30, 2020 and 2019 were as follows:
|
|
Three-Month Period
|
|
|
Three-Month Period
|
|
|
|
Ended September 30, 2020
|
|
|
Ended September 30, 2019
|
|
Re-imbursement of reclamation costs
|
|
$
|
63,205
|
|
|
$
|
25,728
|
|
Leasing of water rights to third party
|
|
|
5,743
|
|
|
|
5,631
|
|
Total
|
|
$
|
68,948
|
|
|
$
|
31,359
|
|
Note 10. Segmented Information:
Segmented information has been compiled based on the material mineral properties in which the Company performs exploration activities.
Expenses and mineral property carrying values by material project for the three-month period ended September 30, 2020:
|
|
Exploration
Expenses
|
|
|
Land Holding
Costs
|
|
|
Mineral Properties
As at September 30, 2020
|
|
Sleeper Gold Project
|
|
$
|
283,263
|
|
|
$
|
106,904
|
|
|
$
|
24,147,585
|
|
Grassy Mountain Project
|
|
|
352,764
|
|
|
|
24,279
|
|
|
|
23,185,728
|
|
|
|
$
|
636,027
|
|
|
$
|
131,183
|
|
|
$
|
47,333,313
|
|
Expenses for the three-month period ended September 30, 2019 and mineral property carrying values as at June 30, 2020 by material project:
|
|
Exploration
Expenses
|
|
|
Land Holding
Costs
|
|
|
Mineral Properties
As at June 30,
2020
|
|
Sleeper Gold Project
|
|
$
|
108,197
|
|
|
$
|
102,799
|
|
|
$
|
24,147,585
|
|
Grassy Mountain Project
|
|
|
350,375
|
|
|
|
34,778
|
|
|
|
23,185,728
|
|
|
|
$
|
458,572
|
|
|
$
|
137,577
|
|
|
$
|
47,333,313
|
|
11
Note 11. Commitments and Contingencies:
Lease Commitments
The Company has an office premise lease that expires on June 30, 2021. The aggregate minimum rentals payable for these operating leases are as follows:
Year
|
|
Total Amount
|
|
2021
|
|
$
|
5,288
|
|
During the three-month period ended September 30, 2020, $16,474 was recognized as rent expense in the statement of operations and comprehensive loss/income.
Other Commitments
Paramount has an agreement to acquire 44 mining claims (“Cryla Claims”) covering 589 acres located immediately to the west of the proposed Grassy Mountain site from Cryla LLC. Paramount is obligated to make annual lease payments of $40,000 per year for the first two years of the lease term commencing in 2018 and $60,000 per year thereafter with an option to purchase the Cryla Claims for $560,000 at any time. The term of the agreement is 25 years. In the event Paramount exercises its option to acquire the Cryla Claims, all annual payments shall be credited against a production royalty that will be based on a prevailing price of the metals produced from the Cryla Claims. The royalty rate ranges between 2% and 4% based on the daily price of gold. The agreement with Cryla can be terminated by Paramount at any time. All lease payments under the agreement are up-to-date and no other payments were made during the three-month period ending September 30, 2020. The Cryla Claims are without known mineral reserves and there is no current exploratory work being performed.
Paramount has an agreement with Nevada Select Royalty (“Nevada Select”) to purchase 100% of the Frost Project, which consists of 40 mining claims located approximately 12 miles west of its Grassy Mountain Project. A total consideration of $250,000 payable to Nevada Select will be based on certain events over time. Nevada Select will retain a 2% NSR on the Frost Claims and Paramount has the right to reduce the NSR to 1% for a payment of $1 million. All required payments under the agreement are up-to-date as of September 30, 2020. The Frost Claims are without known mineral reserves.
Note 12 Subsequent Events
Subsequent to the period-ended September 30, 2020, the Company issued 350,609 shares upon the conversion of 351 outstanding 2019 Convertible Notes.
12